On Location at HKPCA: IPC’s Mitchell and Carmichael on Asia, the Global Industry Outlook, and Trump

While in Shenzhen, China recently, with the PCB industry’s biggest trade show as a backdrop, Publisher Barry Matties sat down once again to interview IPC President John Mitchell and IPC Asia President Phil Carmichael. This time they discussed trends they’re seeing in the Asia-Pacific region and what a Trump presidency means to the industry.

Barry Matties: With the International Printed Circuit and APEX South China fair as our setting, please give our readers a little context about this show, its purposes, and its successes.

John Mitchell: To begin with the scope, there's approximately 500 exhibitors and about 2500 booths.

Phil Carmichael: Overall, it looks like it will be 4–5% bigger than last year, so it will maintain its position as the largest show in our industry, worldwide.

Matties: Oh really? Worldwide?

Mitchell: That's what they say, around 50,000 square meters.

Matties: I guess I'm comparing that to electronica or productronica, but that's a diverse show.

Carmichael: That's a diverse show. In our space, we compare it to the IPC APEX EXPO, and it's much bigger. So if you're talking about the printed circuit board industry, the supply chain people, equipment manufacturers, the chemical folks and so forth, it's the biggest in that space.

Matties: Phil, why don't you begin by telling us what’s going on here with the Chinese market.

Carmichael: We're continuing to see growth. We'll have another record year this year. We will end the year in the Asia Pacific with over 900 members, a net increase of over 100 members for the year. We're continuing to see growth opportunities. China is starting to suffer some of the same pressures that other companies have as far as the cost of producing things.

So we're seeing a number of manufacturers looking at alternative spots to manufacture, like Vietnam and Thailand. I think that trend will continue. The wage delta for operators is a factor of five to six between Vietnam and China, so that starts to allow you to consider moving somewhere else. If it was a few percent or 25%, you probably wouldn't move, but when it's a factor of five then it starts to be compelling.

Matties: So the economy in China has been what most people would call flat, 6 or 7%. Is there a recovery so to speak in place now, do you think?

Carmichael: You know, our industry has always done a little bit better than the general economy. I'd say that's still the case. It's been a pretty healthy year. I've talked to a number of exhibitors today, both Chinese domestic and a couple of foreign exhibitors. They're pretty pleased with this year from an economic standpoint. Is it a robust recovery? No, but it's a solid year of business so I think that's why we kind of characterize it that way.

Matties: This market, it seems like 10 or 15 years ago, it was more of the Wild West. It's a maturing market and the dynamics seem to be different in a maturing market. How would you describe the comparisons of then and now?

Carmichael: You're right, China is much more of an integrated player within the worldwide supply chain than it was 10 years ago. So things that happen on a worldwide basis have an effect on China and vice versa. And you've got this really extended supply chain. You've got people making materials in one place, equipment somewhere else, doing final assembly maybe here in Shenzhen to ship into a product to be final assembled in Chongqing and shipped out as an iPad. That's the type of supply chain; it's gotten very sophisticated and quite complicated. But I'd say certainly China and the rest of Asia, Taiwan, Japan and Korea, are now all fully integrated into this worldwide supply chain now.

Matties: How's the attitude in China towards the election and the new direction in America? In particular, when there's conversation of Apple pulling some of the manufacturing out of Foxconn, or is it just that Foxconn will set up a facility in America?

Carmichael: Maybe I should defer the U.S. election question to John.

Mitchell: If Foxconn were to create a factory in the U.S. in response to President-elect Trump’s promises to put a 45% tariff on China goods, that would likely not result in as many jobs in the U.S. as one might think. Much of that factory would likely be automated, and whatever new jobs were created would likely be focused on highly skilled advanced manufacturing. Of course, that is all conjecture at this point as no one really knows for sure what will happen under the Trump administration.

Things will be different, but that can be a good thing. I tend to take more of a positive outlook on things. If President-elect Trump, once he becomes President Trump, actually does things that are very strongly aligned with business, he'll be able to move them through quickly because he's got a full Republican Congress now. That is a positive thing.

And that seems to be his tendency. So I think we'll see things like tax reform, which has been years in battle and unable to move, begin to. I think we'll see some things happen there. One of the challenges globally that the U.S. faces is its tax structure. It’s the second worst in the entire world for corporations in terms of trying to do business in the U.S. During our IMPACT Washington, D.C. event, we bring in many of our members who are U.S.-based, who also have facilities over here in Asia. They tell the Administration and they tell their Congressmen all the same thing: “Look, I'd love to build a factory here, but you're going to hit me with a 20% penalty just for starting here? How do I explain that to my Board?” You can't. If they fix that situation, it could be interesting.

On the other hand, this idea of building a wall and throwing up tariffs and harming the import-export peace is going to counteract that. Let's say they address the tax issue, and they build a factory in the U.S.; if you can't buy goods from wherever you need to buy them, the prices still go up. And if you only have a market to sell to that's limited to local, there's nowhere to sell the goods. So that's not going to help manufacturing. It has to be a total solution. But Trump has been, and maybe you've heard this once or twice, inconsistent in what he's said versus what he does. The hope is that he will be very business friendly and that he will help the U.S. economy. That will help the global economy. If the U.S. can start growing jobs to make even stronger purchases, then the entire global economy, if trade is maintained there, will pick up. That will help Asia, that will help Europe, that will help everywhere.

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On Location at HKPCA: IPC’s Mitchell and Carmichael on Asia, the Global Industry Outlook, and Trump

While in Shenzhen, China recently, with the PCB industry’s biggest trade show as a backdrop, Publisher Barry Matties sat down once again to interview IPC President John Mitchell and IPC Asia President Phil Carmichael. This time they discussed trends they’re seeing in the Asia-Pacific region and what a Trump presidency means to the industry.

Barry Matties: With the International Printed Circuit and APEX South China fair as our setting, please give our readers a little context about this show, its purposes, and its successes.

John Mitchell: To begin with the scope, there's approximately 500 exhibitors and about 2500 booths.

Phil Carmichael: Overall, it looks like it will be 4–5% bigger than last year, so it will maintain its position as the largest show in our industry, worldwide.

Matties: Oh really? Worldwide?

Mitchell: That's what they say, around 50,000 square meters.

Matties: I guess I'm comparing that to electronica or productronica, but that's a diverse show.

Carmichael: That's a diverse show. In our space, we compare it to the IPC APEX EXPO, and it's much bigger. So if you're talking about the printed circuit board industry, the supply chain people, equipment manufacturers, the chemical folks and so forth, it's the biggest in that space.

Matties: Phil, why don't you begin by telling us what’s going on here with the Chinese market.

Carmichael: We're continuing to see growth. We'll have another record year this year. We will end the year in the Asia Pacific with over 900 members, a net increase of over 100 members for the year. We're continuing to see growth opportunities. China is starting to suffer some of the same pressures that other companies have as far as the cost of producing things.

So we're seeing a number of manufacturers looking at alternative spots to manufacture, like Vietnam and Thailand. I think that trend will continue. The wage delta for operators is a factor of five to six between Vietnam and China, so that starts to allow you to consider moving somewhere else. If it was a few percent or 25%, you probably wouldn't move, but when it's a factor of five then it starts to be compelling.

Matties: So the economy in China has been what most people would call flat, 6 or 7%. Is there a recovery so to speak in place now, do you think?

Carmichael: You know, our industry has always done a little bit better than the general economy. I'd say that's still the case. It's been a pretty healthy year. I've talked to a number of exhibitors today, both Chinese domestic and a couple of foreign exhibitors. They're pretty pleased with this year from an economic standpoint. Is it a robust recovery? No, but it's a solid year of business so I think that's why we kind of characterize it that way.

Matties: This market, it seems like 10 or 15 years ago, it was more of the Wild West. It's a maturing market and the dynamics seem to be different in a maturing market. How would you describe the comparisons of then and now?

Carmichael: You're right, China is much more of an integrated player within the worldwide supply chain than it was 10 years ago. So things that happen on a worldwide basis have an effect on China and vice versa. And you've got this really extended supply chain. You've got people making materials in one place, equipment somewhere else, doing final assembly maybe here in Shenzhen to ship into a product to be final assembled in Chongqing and shipped out as an iPad. That's the type of supply chain; it's gotten very sophisticated and quite complicated. But I'd say certainly China and the rest of Asia, Taiwan, Japan and Korea, are now all fully integrated into this worldwide supply chain now.

Matties: How's the attitude in China towards the election and the new direction in America? In particular, when there's conversation of Apple pulling some of the manufacturing out of Foxconn, or is it just that Foxconn will set up a facility in America?

Carmichael: Maybe I should defer the U.S. election question to John.

Mitchell: If Foxconn were to create a factory in the U.S. in response to President-elect Trump’s promises to put a 45% tariff on China goods, that would likely not result in as many jobs in the U.S. as one might think. Much of that factory would likely be automated, and whatever new jobs were created would likely be focused on highly skilled advanced manufacturing. Of course, that is all conjecture at this point as no one really knows for sure what will happen under the Trump administration.

Things will be different, but that can be a good thing. I tend to take more of a positive outlook on things. If President-elect Trump, once he becomes President Trump, actually does things that are very strongly aligned with business, he'll be able to move them through quickly because he's got a full Republican Congress now. That is a positive thing.

And that seems to be his tendency. So I think we'll see things like tax reform, which has been years in battle and unable to move, begin to. I think we'll see some things happen there. One of the challenges globally that the U.S. faces is its tax structure. It’s the second worst in the entire world for corporations in terms of trying to do business in the U.S. During our IMPACT Washington, D.C. event, we bring in many of our members who are U.S.-based, who also have facilities over here in Asia. They tell the Administration and they tell their Congressmen all the same thing: “Look, I'd love to build a factory here, but you're going to hit me with a 20% penalty just for starting here? How do I explain that to my Board?” You can't. If they fix that situation, it could be interesting.

On the other hand, this idea of building a wall and throwing up tariffs and harming the import-export peace is going to counteract that. Let's say they address the tax issue, and they build a factory in the U.S.; if you can't buy goods from wherever you need to buy them, the prices still go up. And if you only have a market to sell to that's limited to local, there's nowhere to sell the goods. So that's not going to help manufacturing. It has to be a total solution. But Trump has been, and maybe you've heard this once or twice, inconsistent in what he's said versus what he does. The hope is that he will be very business friendly and that he will help the U.S. economy. That will help the global economy. If the U.S. can start growing jobs to make even stronger purchases, then the entire global economy, if trade is maintained there, will pick up. That will help Asia, that will help Europe, that will help everywhere.

Matties: How does IPC plan for this? Or is it a wait and see?

Mitchell: How do we plan for this? What we can do is get ready; get our members ready and get our industry ready. We keep our ear to the ground. We try to make sure that as we become aware of discussions about policy or changes to regulations, that sort of thing, that we inform our membership and then get in early before it becomes enacted and we're caught by surprise. We've been caught by surprise in the past. Recently, we've been very fortunate in being able to be on the ground and actually get our language right into the bills.

Whether it's in D.C., Brussels or Beijing, we try to be more aware, which is why we have facilities in all those places.

Matties: I think planning or wait and see, there may also be new opportunities if we're seeing taxes and regulations ease. It seems to me that immediately we're going to see a rather large bump in capital equipment purchases, for example.

Mitchell: You would think so. Because you're not going to move the equipment. The opportunity of that as well is that this industry is capital intensive. So 20 years ago when a lot of the industry was growing here in China, the great advantage that China had was that they were buying new equipment. So you had the latest capabilities and you could compete better. It was faster, better, stronger. If that opportunity happened where it made sense for companies to start building factories in America again, well, guess what? They're going to buy the latest equipment and that could shift in some product areas where suddenly the advantage may be back in the U.S. to build it.

However, that doesn't necessarily mean more jobs. Because with so much of the new technology you need knowledge workers, engineers and people who have STEM education in order to manage the factory of the future that's not manual.

Matties: That goes back to my question. If we see this is going to happen, is there new education that needs to take place?

Mitchell: Yes, these are the kinds of things that IPC is doing. So while we can't affect policy directly, we try to influence it, but in terms of education, we've launched IPC EDGE. We're trying to find ways to expedite the process. Instead of saying, “oh, we need to wait eight years to get a master's degree student out of the university,” is there a 12-week program that can train somebody that we can help develop and work in the industry? So we have those plans. We're looking at 2017 to harness the power and the information of the industry, and this affects the global marketplace, not just the U.S., and to say, “what are the skill sets you need in the factory and can we build that into an online training system so that you agree if they get IPC certified or IPC authenticated to certain skill sets that you'll go hire that person based on that?” And now for 12 weeks, you can train staff quickly and efficiently and you can start bringing people in very quickly instead of waiting multiple years.

Matties: Is it possible to see that sort of shift happening in the U.S.? There's a real labor shortage there.

Mitchell: There's a labor shortage everywhere. I was just on a panel at our IMPACT Europe event in Brussels on the skills agenda in Europe and it’s the same issue there. In China, we talk to our people here, there's still a knowledge shortage of skilled workers here. It is a global phenomenon. We need to train to the right level of people and if we can expedite that process instead of waiting years to get that degree, that's the opportunity IPC is providing through IPC EDGE.

Matties: In China, you instituted the training program for the entry level.

Carmichael: The operator entry-level program.

Matties: How's that working out?

Carmichael: It's been slow, but I think part of the challenge is the delivery method. You'll see us working within the next 12 months to be able to offer that type of a program online. I think that's the key. There's a lot of training in China that's done online today. This is a fairly entry level type program where you want to be able to train a lot of people at the same time. It's not exactly the right type of program to do in a classroom with a full-time instructor. It's better to have it done as part of the onboarding process for people. We expect that when we get our online activity up and running here that we'll see an uptick in that as well.

We've also added that in the U.S., and we've added an ESD program, which will be a certification type program for people, particularly good for onboarding. As you know in China, there's a lot of cyclical activity in the industry. Typically, 20–25% of labor that goes back home for Chinese New Year doesn't return. So there's this opportunity, and we will be ready for that opportunity to be able to offer online training for onboarding, whether it's the operator program or the ESD program around that time frame, which will be in the late February/early March timeframe for 2017.

Matties: APEX is right around the corner. What should we expect there?

Mitchell: It's going to be big. Actually I just saw the data last night. At the same point compared with last year and compared with the same point with the last San Diego show, we're up, depending on the metric, between 20 and 150%. Now that depends on the metric, but in terms of exhibitors, we're already ahead on that metric. That was the 15 to 20% metric. We've got a lot more people advertising there, which has been exciting. That's the 150% metric and that was at the 11 weeks out point. So we're about ten weeks away right now. I'm very encouraged about it. The space is also larger that's being used so everything is up, up, up.

Matties: Back in San Diego?

Mitchell: Happy to be there. We'll be there for the next six years.

Matties: That's great. How long have you been with IPC?

Mitchell: It will be five years in April.

Matties: Five years. And Phil, you've been there about four?

Carmichael: Yes, four years.

Matties: So respectively, what's been the most surprising thing that you've come across in this industry during your time with IPC?

Mitchell: I don't know if it's surprising, but we're trying to do a lot of new things at IPC. We're trying to upgrade our education systems. We're trying to be more responsive to industry needs in terms of standards turnaround time. In the electronics industry, six years is not optimal turnaround time for industry’s most important and needed standards. For some standards it's still OK, but in general we try to speed this up. I'm a little surprised at some of the resistance to some of the changes, but then again, not really that surprised. With any change, there's resistance. So that's been a little bit hard.

It's been surprising at how much value there is in the intangibles to IPC. So standards, that's easy. It's quantifiable. I need to do this, here's the value of it. It saves me hundreds of people to generate my own standards. So that's easy to quantify. Education, you get a return on that. That's easy, etc. The intangible things, developing and participating in events like this, events like the IPC APEX EXPO, where you get a chance to sit in a standards meeting or sit in a training session or visit somebody in a booth and share a technical problem and ways to solve it.

The camaraderie of the industry is pleasantly surprising. People genuinely care and want to help. One individual shared with me, “You know, I had this issue going on in Chicago and I was on the West Coast. I happen to know somebody in Chicago from one of my APEX meetings. I called them up. He actually took care of business for me.” That's awesome! I mean, he had a conflict and couldn't tackle it but an industry peer could. That type of camaraderie does exist. Somebody will sit in an IPC meeting and say “Hey, I'm facing this problem.” “Oh, I've seen this problem. Let me tell you about it; 15 years ago this is what we did to solve it.”

So that has been such a joy to see, that this industry, when it comes together, is willing to help each other. It's not about just being a competitor. There is that, but in the places where they can collaborate appropriately, they do, and that's really wonderful to see.

Matties: How about you, Phil?

Carmichael: We have a slightly different paradigm here. One of the things that's different in Asia is that we do have other national and local printed circuit boards and associations like the CPCA, we even have one here in Shenzhen. Despite that, by offering some good value, less so of the networking camaraderie that's done in the U.S., but adding some serious value to people, has allowed us to basically triple our membership in that four-year period. I was surprised that we would be able to grow it that fast. I'd say that's the biggest surprise.

Again, I think the other issue is that IPC is a global organization and we used this example recently in Beijing when John was there earlier this year on a visit. Our partners in Asia or China specifically, still think of us as a U.S. organization. So I like to take out a standards book and show them at the beginning of the book the people who contributed to this are increasingly not just Americans. They're Chinese, Koreans, Japanese, and so on. So I've kind of started using the example that we're like a mixed-race child. So that you can't say that we're 100% from North America because we have Europeans that are writing on these standards and we've got a lot of Asians that are involved in the standards. We've got 350 people who contribute voluntarily on standards in China alone.

That's part of the effort that goes into building IPC as a global organization. I think that's also been a surprise to me that we've got as many people participating on the standards front as we do.

Matties: One thing that's been really surprising to me is the intensity with which people approach the hand soldering competition. That was really surprising. You know, when I first heard the story that we're going to do the soldering, I thought, “Oh, that's cute,” and it's turned out to be like an Olympic style event. It's really quite impressive in what you've done and how you’ve raised the importance of it.

Carmichael: We would be remiss if we didn't say this year for the first time, the global championship is going to be held here in Shenzhen. It will be held here Friday.

Matties: Nice!

Carmichael: And so this was not just China, not just AP, but worldwide.

Mitchell: You've got people flying in from all over the world.There will be a competitor from Europe, from France, who will be participating in the finals. The other thing that's going on here in China that we're looking at closely to maybe make more global as well is the PCB design competition. We had more than 250 people participate this year.

Carmichael: We had 1,000 entries. We've whittled it down to 228 qualified and we just had the competition earlier.

Matties: That's a large area of growth in this region.

Mitchell: Right. And one of the challenges with the hand soldering competition is that there's not a lot of hand soldering going on in the U.S. The U.S. has not been a strong participant in that. However, PCB design is everywhere. So that's why I think it might be very interesting to expand it. Again, this is nice. It's something that started in China. Let's take it across the world.

Matties: I appreciate you guys coming by today. Any last thoughts?

Carmichael: Well, we're always happy to talk to I-Connect007. You're really a true voice of the industry and we appreciate the opportunity. It's great, the segments and the way you hit them, etc., and helping us reach the industry through you in these types of interviews. So thank you very much.